Pity the oil and gold producers
DAVID BERMAN
RTGAM






It used to be that if you were bullish on a commodity you invested in a commodity producer: Their costs were generally fixed, so rising commodity prices went straight to the bottom line. Recent action has disproved this relationship - but what's really surprising is that commodity producers have generally lagged their underlying commodities for years.

We looked at the two commodities that have the highest profiles within Canada and are the easiest to gain exposure to through the stock market: Gold and crude oil. In both cases, the equities lagged the commodities in a big way.

Over the past five years - a roller coaster period that includes oil's spike to a record $145 (U.S.) a barrel in 2008, its collapse to a low of $34 a barrel in 2009 and its subsequent recovery - the price of crude oil has risen 55.7 per cent in U.S.-dollar terms. However, the S&P/TSX energy index has fallen 15.8 per cent over this same period, marking an amazing 71.5 percentage point difference.

Sure, the energy index includes explorers and companies with a heavy exposure to natural gas, a commodity that has been suffering from low prices in recent years. But large-cap crude oil producers have actually performed worse than the overall index. Suncor Energy Inc. has fallen 27.8 per cent over the past five years and Canadian Oil Sands Ltd. has fallen 26.1 per cent.

In some ways, gold producers look even worse. Yes, the 16-member NYSE Arca Gold Bugs index has returned an impressive 36.8 per cent over the past five years. However, gold has risen 150 per cent over this period, meaning that gold producers have lagged their underlying commodity by an astounding 113.2 percentage points.

When some observers talk about the end of the commodities bull market, you have to wonder: For commodity producers it's long gone.